Special Report

According
to internal documents from the California State University administration,
auditors have found an inappropriate co-mingling of state general funds (public
money) with the other funds (such as those raised privately or generated by
revenue operations) held in the university’s 90 affiliated auxiliary
organizations.

The documents indicate
high level executives in the CSU Chancellor’s Office, including the CSU
system’s Executive Vice Chancellor and Chief Financial Officer, are aware that
public money is being improperly deposited in funds controlled by CSU auxiliaries.
All funds and accounts in CSU auxiliaries and foundations are shielded from the
state’s open records laws and from public scrutiny because of a loophole in the
state Public Records Act. The Chancellor is fighting legislative actions to
close the loophole.

For
at least the past several months, CSU executives have known about the inappropriate
housing of state funds in accounts controlled by its non-profit auxiliaries and
foundations rather than in accounts controlled by the public agency. To date,
however, it appears as though the Chancellor’s Office is unable or perhaps
unwilling to make the necessary corrections to its practices to fix what has
been discovered by the auditors.

The documents reveal a
sense of urgency on the part of the CSU administration to clean up these
problems and before they are uncovered or caught by a state audit. University
Auditor Larry Mandel reported on March 23, 2010 that an “audit of UC could lead
to an audit of the CSU so we would like to be ahead of the curve – fix the
problem before an audit happens.”

At
the same time, however, the administration reduced the number of financial
audits of the 23 campuses last year and according to these documents is
planning to stop auditing individual campus financial statements altogether in
the near future. In a meeting on August 11-12, 2009, Assistant Vice Chancellor
George Ashkar reported on the CSU’s audit plans with KPMG, the global
accounting firm that has been auditing the CSU since 1996-97: “KPMG agreed to
reduce the scope of their audits with a plan to complete ten full-scope audits
this year, and twelve next year. George’s goal is to eliminate full-scope
audits next year at campuses.”

In
February 2009, Senator Leland Yee (D-San Francisco) introduced legislation that
would close the loophole in California’s Public Records Act that currently
exempts university-affiliated foundations and auxiliaries from the transparency
standards to which other state agencies are held. During that year, Sen. Yee’s
bill (SB 218) moved virtually unopposed and with strong bipartisan support
through both houses of the California legislature. The bill was vetoed by Gov.
Schwarzenegger. A modified version was reintroduced in December 2009 as SB 330.
Since the beginning of the 2009-10 legislative session, CSU Chancellor Reed has
spent almost $300,000 on outside lobbyists to assist the administration’s in-house
lobby team’s attempt to defeat both bills.

The
internal documents referred to in this report are minutes of meetings of the
CSU system’s chief administrators and business officers (CABO). They were
obtained and analyzed by the California Faculty Association. The CABO group
includes Vice Presidents of Administration and Finance from each campus, the
CSU system’s Chief Financial Officer, Vice Chancellor of Human Resources, and a
number of other Chancellor’s Office executives and high level managers.[1]